Quarterly Journal on Management
From the publishers of THE HINDU BUSINESS LINE
Vol. 2 :: Iss. 3 :: February 1999
The ICT Revolution: A personal View
A management consultant from McKinsey was on a round-the-world trip in - rather ironically - a hot air balloon. He lost his way, and decided to come down in the middle of a vast field, which he thought was somewhere in the wilderness of the Mid-West. As he was coming down, he noticed a man sitting in the middle of the field and lowered the balloon to hover a few feet above him. "Can you please tell me where I am?" he asked. The man looked up, squinted into the sky and said, "You're somewhere in the Corn Belt, hovering over the ground at twenty feet and heading South West", and reeled off the latitude and longitude numbers. The consultant said, "Are you by any chance from the IT industry?" "Hey, how did you know?" responded the other. "Well what you've told me is probably totally accurate but it's also totally useless!" The IT manager not to be out done asked, "Are you by any chance a consultant?" "Yeah!" it was the other man's turn. "And how did you guess?" "Quite simple really. To begin with, you were lost and didn't know where you were going. And now, you are still lost, except that now it's all the other guy's fault!" The story illustrates something about the stereotypes we all carry around about other professions, especially the more exclusive sounding ones such as those to do with computers and the internet.
The computer has long been invested with a mystique that was reserved in an earlier age for soothsayers and voodoo men. Few other forces have changed the way we live as emphatically in this half of the twentieth century. Superhuman speed and accuracy were considered to be its hallmarks. Executives worshiped them from afar as the unions dreaded them. I remember the plaintive cry of many a field executive in the early days as he was trying to reconcile his trade outstandings with the accountant. "But the EDP department says the money hasn't been paid!" And "how can the computer go wrong?" he would exclaim, as if only humans were prone to error.
Garbage-in-garbage-out was not yet part of the average manager's vocabulary.
It was the late 'Sixties, when the computer was just a fast typewriter plus a high power calculator and spewed out reams of payroll statements and invoices. Even in its primitive role, housed in a huge wardrobe-like shell or a cabin, it was seen as the repository of all accurate corporate information and run by a separate department head. Later, when the large systems were made to do more complex tasks, a computer was still seen as a workhorse, attached to the Finance department. I recall an instance around 1980 when an elderly Finance Director became apoplectic when someone suggested the creation of an independent computer facility that provided MIS service for all of management. He felt dispossessed. "You are taking away the ink and still asking to write with a pen!" he protested dramatically, and would not be easily persuaded.
Industry and management have moved a long way from that stage. Now even in India, we accept networks and PC based information processing as the norm.
Yet another instance comes to mind: Again, in the early '80's, a medium size system was recommended to a major company with over Rs 300 crore turnover, a substantial amount of money by any standards. The company-wide system was to cost about Rs 35 lakhs. The benefits, on the other hand, were obvious but difficult to quantify. How can we estimate the value of better-informed and more prompt decisions, I was asked. Even the CEO wondered loudly whether the Board would ever be far sighted enough to see the intrinsically different kind of animal we were dealing with.
Today, being IT-wise is seen as part of the table stakes in the game. Yet, I should imagine almost all the senior managers at Board level are slightly apprehensive about this new entity that is rapidly changing the very rules of the game itself. Few really understand, and fewer still are happy to say so!
The industry suffers from a generation gap too. Almost everyone in the IT field seems to be just out of college, or at least wants to dress and behave as if he or she were, while all those who write the cheques are on the wrong side of 50! Many things contribute to the unease of the latter. The business is full of its own arcane jargon. Thin client, VSAT, ISP's, SAP vs. BaaN, Intranet, Oracle, Unix, C++ are some of the magic words that stump ordinary mortals, including CEOs of large corporations.
Another strange phenomenon from the traditional executive's viewpoint is the rapid and steep fall in prices of hardware. One pays less and less for better performance and power as the months go by. This is something we are not quite used to. Commodity prices do drop, but they go back up again, whereas IT systems are the only things on earth that seem to defy a natural law of economic life. It makes nonsense of the accounting terms such as book value, and depreciation or appreciation. Discounting cash flows from the massive investments becomes a bit farcical, given the rate of change in ever newer software or upgrades in ERP and so on.
For the CEO, the inevitability of a decision is always rather disconcerting. It means a loss of power and the inability to overrule someone far junior but more au fait with the new language. Yet this happens all the time where IT system choices are to be made. All this is less significant than the enormous burden it places on the organisation to learn a new way of doing business. The more distant and mysterious a new system seems from the everyday experience of today's senior manager who was schooled in the '70's and '80's, the more difficult it is for him to adjust. This is witnessed first in the typical denial phase. "I don't think we can give up the manual system for some time. We must run it in parallel for a year. The boss must still have a right to veto a rational allocation or prioritising the decision made by the system. Our company is not yet ready to be quite without paper or files. We must keep a hard copy of all documents as a second back up!" And so on.
Basically, all managers instinctively understand that knowledge is real power. Exclusivity in access to information creates internal power centres within the organisation. Decentralised generation of data and its wider dissemination obviously takes the mystique of the decisive manager out of the reckoning. That is why the approach towards an enterprise-wide data base that can be reached by the sales, materials, production and accounts department - to take an example - makes some executives uncomfortable. You would be quite familiar with the situation where customer-wise data is considered the territory of the sales and marketing people, while actual stock levels and availability forecasts are zealously guarded by the production planning and material functions. To think of sales, pending orders, closing inventories, sales estimates, work-in-process, factory production plans and orders on the vendors for input supplies - all becoming part of the same data base - is still a subversive idea for many! Software that does the overall resource planning for the enterprise is therefore likely to face some speed breakers on the way.
From being a specialist skill, using a computer has become a minimum necessary competence like spelling. The Net and the Web have followed the PC revolution and one is told of the possible marvels of the "thin client". The PC as we know it will be replaced by an all-purpose, front-end machine that might even double up as a source of entertainment, competing with the TV set.
The manager will use it to access the vast store of digital, voice and text information up there in the ether every time he or she logs on - either at home or at work, or indeed anywhere on the move. From a business-related office equipment category (which included the old-fashioned typewriter and copier that it mimics in some ways) the PC has moved to being a consumer durable and an entertainment and educational medium. Indeed far more effectively so than the TV itself. Every manager therefore has to "go back to school" at least to grasp how the keyboard and the mouse operate, and what the basic icons on the desktop mean. One sees a strange inversion of conventional roles, similar to what we feel when discussing fashion or pop music with teenage children. The adult is the learner, and the kid plays the expert!
True, even today there are senior managers from another age who think word processing is a stenographer's job, and unworthy of a top manager's time and effort. These people are missing the whole point of the Information revolution. It is not just about processing any more. Although voluminous data are being massaged this way and that to extract meanings hitherto inconceivable, the more important impact is in terms of creating products and services and ways of doing business that are totally new. Let us look at a few examples.
The ATM card has dramatically altered banking. It has really done away with time. One no longer has to rush to the queue during lunch hour because that is the only time the bank could let you get your hands on your own money! Soon more and more banks would begin to let us draw funds from our account wherever we are - rather than where the bank is! Of course, it was always possible to establish your identity and draw money from another branch of the same bank where you had a bank account if you went to great trouble over the verification. Today, one swipe does it all!
The point is often made that people will always want the touch and feel of other human beings, and that the machine alone will never do business or eliminate all human contact. As a CEO recently remarked, 'If I am going to lend you some money or buy something from you, I'd certainly want to meet you across the table!' Only then would he feel sure of what he was letting himself in for. It seems reasonable to think that one can't replace gut-feel or rule out the role of personal chemistry and sixth sense in business dealings.
However, this is not to say that there aren't very many instances where distance can really be "killed" by the combined use of telecommunication and the computer network. Teleconferencing is no longer a miracle or an expensive toy. It is beginning to be used for important international meetings and Board level discussions even in Indian companies. Another as yet less understood, but cheaper, option is routine text based messaging or computer conferencing.
This is being very successfully applied in executive education by ACME in Chennai, in collaboration with the Open University of the UK. The VP Sales of a large company regularly logs in via the computer weekly wherever he is in the world, to seek the latest market information from his Branch managers. Even the best of the facsimile text messaging could not have matched this system for immediacy and interactivity. As businesses become more inter-linked and global, both text and video conferencing should eliminate at least some of the strain of travel to routine meetings.
Historically, modern marketing was born in the West, thanks to the post-war boom in consumption. A full employment economy, relative peace, pent-up demand, and the purchasing power of the baby boomer generation all made branded goods marketing on a vast scale a viable business. Impersonal communication, through mass media and mass merchandising, laid the foundation for high volume, low price, brand building. Before the days of super-markets and chain stores, expressways and network television, every large economy was an agglomeration of local and regional markets. This was very much so in the US too. In a sense, this trend - of catering to the local populations with niche or regional products to cater to their peculiar preferences - never really died out. Examples are brands of beverages - especially beer - cigarettes, confectionery, breakfast cereal, and so on.
Only, a national marketing company may also have bought up today all the regional brands. Brewery chains in the UK own many "locals" and market some popular ales under familiar names, even after the ownership has changed hands.
Today, what IT has done is to provide the advantages of both scale and micro-level customer information. Retail outlet data based on bar code reading of all goods passing the checkout counter, could feed you with all the conceivable minute detail you could possibly ask for. You could find out what Mrs Mehta bought for her home last week.
You could, of course, find out the number of customers who bought your new brand or flavour of soup in its first week of launch - street- or locality-wise, If you chose to. Thus, the user of a supermarket card is no longer a mere statistic in an amorphous mass called the suburban, professional, middle class. She is a particular individual, who leaves a trail of incriminating evidence about her predilections and actions every time she allows her card to be read by a machine!
In some ways, the nineties have turned the old assumptions of marketing on their head. It is now fashionable to describe marketing as dialogue. In its most abstract definition, Marketing is seen as the way in which an enterprise reacts to, shapes and is shaped by its environment. Hitherto, direct face to face encounters between the manufacturer of a household product and its consumer have seldom happened. Such a direct selling interface is only in the rarest of exceptions such as negotiated contracts.
For a Coca-Cola or Procter & Gamble or Unilever, the dialogue has been asynchronous and conducted through several intermediaries. Until recently, any company that chose to approach a countrywide market for its products had to depend on inventory-based information. Hence the long supply chain of wholesalers, warehouses, retailers and so on. Advertising communication on any sensible scale presupposed expenditure on national TV.
That cost megabucks, which meant either you waited patiently for the brand to grow in volume before you could see appropriate returns, or chose a very gradual roll-out approach and minimised risk of a major financial disaster.
Often, the targeting of selected customers had to be done in a broad-brush sort of way. Finer points of micro segments could not be identified, simply because the instruments of measuring and tracking did not exist. Even if you could locate them, the focused media vehicles to reach them without wasted coverage were not available. And if one could do it, such targeted marketing was prohibitively expensive.
The advent of the credit card, charge card, the website and the whole new world of e-commerce, are all dynamically altering the tone and the very nature of the dialogue. The credit card revolution started as a safe and flexible way of paying for your purchases. It then emerged as a preferred way of settling a number of regular dues and commitments. From being a safe way of carrying cash, at least in the West, plastic money has done away with the chequebook for most of its traditional uses.
Today, you can not only surf the net for the information you need but also buy anything with the same card number and a secure identification. The manufacturer too can chose who he wants to talk to; he can find out how many visited his site (number of hits) everyday; how many simply browsed, how many asked questions (and were satisfied); and how many filled in their shopping carts, and with what products. "Cookies" help the site owner learn a great deal about the surfing and buying behaviour as well as interests of his prospects. This would be of immense help at a micro level in shaping promotional efforts.
The wonderful addition of interactivity in marketing is not just avoidance of wasted coverage and economy; it is also the possibility of continuous learning and improvement of one's service to the customer. In simple terms, it is selling, distribution, promotion and market intelligence all rolled into one. Although selling books by mail is not new to the world, amazon.com would not have happened but for the technology being available.
In other words, ICT has created a new channel of distribution and a variety of new entrepreneurs, to be understood and managed by the Sales or Brand Manager.
To sum up, not only has ICT made the idea of mass customisation a reality, but it has also summarily dismissed the notion of a "mass consumer segment" as outdated.
The ICT processes also enhance and elaborate basic business processes such as selling or market intelligence gathering or new product development in hitherto unimagined ways. Dr. Gerry Zaltman at Harvard, for example, has been working for some years on an interactive process of developing the customer driven specifications for new models of automobiles for Detroit. Consumers come into a room where they interact with sophisticated design software. The machine gives them feedback on the impact of their "desired" shape, colour, size, power, and other configuration variables. The computer "learns" as it goes along based on inputs from a range of customers and eventually produces a complete three dimensional "draughtsman's view" besides a customer view of the hypothetical model. This can then form the foundation on which other functions from material sciences to production engineering to cost accounting can begin work on a new model.
At a Levi's jeans store in the US, you can have jeans made for your particular body statistics. These are relayed to a computer at the factory, which then issues the set of instructions to the machines to pick up the exact amount of fabric and accessories to give you a "mass produced" and at the same time custom-made pair of jeans. It is the ultimate paradox as you can now have your cake and eat it too! Perhaps the best way of understanding the powerful paradox is to consider the way ICT has exploded the world of apparent "either or" opposites.
Managers have traditionally assumed the following to be irreconcilable: low cost and high quality; short time cycles and customisation; reasonable price and custom manufacture; volumes and single piece flow; varied output and small inventories. Instantaneous and accurate information communicated up and down the supply chain makes nonsense of this worldview.
Benetton, the Italian garment brand, has always attempted the unusual, from its branding to its distribution methods. It introduced the idea of tailoring, say, a shirt according to a known design but keeping it in grey cloth stage right up to the pre-packing stage. At that point, based on the customer demand, the two irreversible variables were added: shade of colour and print. Stocks were kept centrally and outlets worldwide were linked electronically with the point of sale. Benetton was thus able to successfully apply the principle of deferred variety, which is the key to cracking the problem of customisation without penal costs.
Simply put, the method involves standardising the processes that the product undergoes to the maximum extent possible. One does this by developing a handful of basic designs or models as the foundation, on which all variability is added on at the final stages of manufacture or assembly.
Variety is introduced as late as physically possible. In automotive manufacturing, Toyota has applied this to yield almost one-of-a-kind cars, out of three or four repeatable foundations. The trick is to add on all combinations of colour of paint, dashboard accessories and frills and furbelows as late as possible in the flow, such that a high volume of output is maintained while being able to satisfy innumerable idiosyncrasies in tastes. One also avoids stocking the wrong type of product, made according to a forecast and having to suffer inventory related losses.
Much has already been written about the claimed benefits of e-commerce. Savings in the order-to-delivery cycle, as well as in carrying costs of inventory, have the great attraction of harming no one. It is truly a win-win situation where both the manufacturer and the customer gain.
In the ultimate analysis, it is in streamlining their own internal supply chain activities and linking backwards with the vendors, that manufacturing companies would best enjoy the virtuous cycle of ICT.